One unique aspect of the PreMarket Prep show is that the co-hosts are monitoring the price action of hundreds of stocks and several futures markets while broadcasting.
As a result, any breaking news or unusual price action can be covered instantaneously.
That was the case with Macy’s Inc. (NYSE:M) at 8:45 a.m. Tuesday when a “fat finger” order was made entirely in thin premarket trading. What happened and what can be learned from it makes Macy’s the PreMarket Prep Stock of the Day.
What Is A Fat Finger? The name is actually self-explanatory. This expression is used to describe someone making a mistake when they are typing. It can also be used to describe somebody pressing the wrong numbers on a number pad.
Someone with fat fingers is a clumsy typist. Fat fingers cause a keyboard input error, and in the case of the markets, refers to a faulty order being sent for execution.
The 'Trigger': With Walmart Inc. (NYSE:WMT) taking a beating after its first-quarter report, co-host Dennis Dick was monitoring several other retailers to help our audience identify potential sympathy plays.
Many of them were trading lower, as investors feared some of Walmart’s peers may have similar first-quarter reports.
One of the issues he was monitoring was Kohl’s Corp (NYSE:KSS), which had a steep decline at the exact time, falling over $1 in less than 30 seconds on no news. That prompted Dick to attempt to identify the catalyst and went to discuss Macy’s price action.
Macy's Takes 30-Second Plunge: As indicated by the chart below, in a 30-second bar, Macy's went from $21 to $15 and rebounded back to $18.33.
Within a few minutes, it was back to $21, where it was trading before the “fat finger” order was entered.
Buyer Beware: Investors should be aware that not all trades below $16.74 may stand and have a chance of being busted. In the clip below, Dick details the 20% price limit rule (Clearly Erroneous Rule) for issues trading in the premarket or after-hours.
That price of $16.74 was derived by taking 20% of the Macy’s price before the fat finger incident ($20.92) or $4.18. That was then subtracted from $20.92 to come up with $16.74 and the cap on the downside. If the institution files a complaint with the regulatory authorities, there is a chance all trades under $16.74 will be busted.
The reason that investors should be aware of this rule is that if they purchase an issue outside the allotted range, then they are in danger of the trade being busted. If they turn around sell the issue for what they think is a profit, it could actually turn into a naked short postion if the earlier buy in disallowed by regulators.
